An increase in aggregate demand, which will shift the aggregate demand curve to the right.
Factors creating a demand-pull inflation:
· Increase in government spending
· Increase in the supply of money
Cost-push
The aggregate supply curve shift to the left. Both result in higher price levels.
Factors which induce a cost-pull inflation:
- Increase in wage rates
- Increase in raw material costs
Increase in the price level in the rest of the worldif prices increase in other countries, residents of those countries will want to buy goods from domestic producers; i.e., exports will increase.
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